OpenTable's (OPEN) recent earnings showed that the online restaurant reservation company has been able to grow despite a sluggish economic environment.  

The company now counts more than 25,000 restaurants across the globe as its customers, with 17,150 reservation-taking restaurants in North America employing OpenTable's system. 

OpenTable added 913 North American restaurants to its list of customers in the fourth quarter 2011, raising the figure to 17,150 from 16,237 in the previous quarter. This did a lot to dispel doubts about the demand for the company's reservation services in a market that is quickly growing very competitive.

The increased customer base naturally helped boost subscription revenues while also allowing the company to seat nearly 25 million diners in North America alone for the quarter. Worldwide, that number reached 27 million.

 

OpenTable's expenses have grown rapidly in previous quarters as the company has spent more in the competitive North American market, as well as recently entered international markets. While a rapidly growing company must spend in order to sustain growth, OpenTable's selling, general and administrative (SG&A) expenses have consistently outpaced revenue growth, which has been a cause for concern.

At first glance the company's fourth-quarter expense figures are encouraging, as evidenced by the marked decline in SG&A expenses. The company reined in its SG&A expenses from nearly $15 million in Q3 2011 to under $13 million in Q4 2011, while revenues grew by 8% over the same period.

Management declined to provide guidance on 2012 figures, but did state that operating expenses are expected to increase by 15% sequentially in Q1 2012 and then increase modestly thereafter. Accordingly, it appears as though the strong expense management may have been a one-time event. However, as long as the company is able to keep growing its restaurant base, seating more diners and improving revenues, we expect that the higher operating expenses will not have a material impact on its performance.

We are currently in the process of updating our price estimate for OpenTable to factor in the proposed shift in focus from the "Spotlight" offering to advertising and services like "Savored."

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